So I know a lot of y'all was probably wondering what are the risks to short-selling. THE RISKS OF SHORT SELLING PENNY STOCKS ARE REAL. It seems too good to be true. So, let's talk about the risks. Try to understand what you're getting into before you start short selling stocks. So, your main risk of this business is going to be when the price of the stock goes up. Let me give you example of that. If you shorted a stock at $1 and let's say you shorted 5,000 shares of that stock at $1, so, 5,000 shares times one dollar equals $5,000. So, you got $5,000, after you shorted it in your account you sold those 5,000 shares and you got the 5,000. Now, let's say you want to buy those shares back later on or the next day at 50 Cents you want to cover your 50 Cents. So, we take those same 5,000 shares times 50 Cents equals $2,500. In that case, you would have made 2,500 but let's say that the price of that stock goes up, let's say that it doesn't go down to 50 cents, how you wanted it to now. Let's say it goes up to $2 right and you force to buy these stocks back at $2 each. Now, 5,000 shares times $2 is 10,000.
Remember you shorted them at $1, so you sold them at $1 and you collected $5,000 for that. Now that the price went up to $2 ,you got to buy those same 5,000 shares back at $2 which is five thousand times two equals 10,000. Now you will lose $5,000 in that case. That's the main risk of this business. Promoters will buy this stock that they are promoting just to make the price rise because when somebody buys a lot of the stock a lot of people buy the stock and that makes the price go up because it's showing that the demand is going high. If a lot of people want it. It makes the price go higher so promoters will fake that. They will buy a lot of that stock to make it seem like a lot of people wanted to. Artificially this will raise the price. Pretty much they making the price go up this will force you out of the trade to make you scared. They do that to scare you away, to scare you out of that stop and when this happens this is called a short squeeze. Again, when promoters you know buy a lot of this stock to make the price go up artificially that's called a short squeeze and they do that to squeeze you out of that trade. They can make money as the prices keep going up and up and up because they don't want the price to go down. Now my advice for you is to take calculated risks. You know, do your homework on the stock and make sure that you do your research about the promoter and cut your losses early. If you see that you are down, you know, three or four hundred dollars, get out of that trade. Don't wait around until you are down two thousand, three thousand dollars later.
For this example right here that we use for instance, cut your losses early and don't battle your ego, that's the biggest advice I will give you. Don't pamper your ego. You know if it's going against you, if this trade is moving against you, just get out and cut your losses early.
Let's say that you wanted to wait till it got down. They got up to three dollars and your broker didn't want to do that so they will force you to buy back those shares at two dollars even if you didn't want to. Let's say that you want to wait the next day, you know, you didn't panic and the stock went down to fifty cents the next day but it went up three dollars that day. You would still make money the next day if you hold it.
That has happened to me before where I was too early and I got down too far. My broker forced me to buy in. They forced me to buy the shares back and I didn't want to do that. If I would have waited three days later, like I knew that the stock will go down, I would have made four or five thousand dollars but I couldn't control that because the broker is always in control. They're the ones that loan you these shares to begin with. They're the ones that front of duties these shares so they're always in control of that.
I just want to keep it real with y'all and let y'all know what can happen so that you can understand the risks of this business. The next token of advice I will give you is don't chase trades. Don't and don't over trade and what I mean by that is, sometimes it won't be a good idea to stop the short. You might have to wait a week or two but don't feel like you got to trade every single day because when you try to chase trades you try to force it that's when you lose money and you don't want to lose money. So just wait for that perfect opportunity, just wait your turn and when you feel that it's a good trade and you are confident in it.
Go through some of the risks with y'all so that you can understand the dangers of this business and I don't want this to scare you out away because you can make a lot of money in this. I have made money in this business and I've lost money but like you, I know that's life. There's risk with anything that you do in any business. In anything that you do there is always risk, so I just want you to be aware of that. Be aware of all the THE RISKS OF SHORT SELLING PENNY STOCKS before you jump in.